Should you invest in Melbourne while it’s cheap?
Lisa Calautti, Freelance Contributor
First published 03 June 2025, 12:00 PM
The latest Home Price Index data from PropTrack shows Melbourne’s median house price rose 0.8% to May to $782,000, continuing its promising recovery after a prolonged Covid-induced downturn.
Despite this progress, Perth has now overtaken Melbourne in median price for the first time in more than a decade, thanks to a strong 8.4% annual growth.
REA Group senior economist Anne Flaherty confirms the only cities with cheaper median house prices than Melbourne now are Darwin and Hobart.
This is a win for bother prospective investors and those not yet on the property ladder.
“Another thing is that because Melbourne is so much more affordable than most of Australia's other capital cities, it's the second cheapest city to rent in,” she said.
“So what that means is, it's also most likely going to drive interstate migration into Melbourne as people being priced out of buying homes in the other capitals will potentially move to Melbourne.”
Ms Flaherty says Melbourne has also been identified as the Australian capital most likely to experience the strongest population growth during the next decade.
“When people first move to a city, they're more likely to be renters than owner-occupiers for at least the first five years,” she explains. “What that means is that Melbourne has had an absolute surge in migration.
“That means within a few years’ time, a lot of these people will be looking to buy their first home, and that's going to lead to increased buyer demand.”
Why has Melbourne’s price growth been low?
Home prices across Greater Melbourne compared to March 2020 have increased just 16%, which was extremely low relative to the growth seen across other capitals, Ms Flaherty says.
“The Australian capital city average is actually 43% over that time,” she said.
“Brisbane, Adelaide and Perth have all seen home prices go up.”
REA Group senior economist Anne Flaherty confirms Melbourne's price growth since 2020 has been extremely low. Picture: supplied
Melbourne’s housing supply relative to other capital cities contributed to its moderate price growth, Ms Flaherty adds.
“This isn't the story currently, but if we look at housing supply issues, they are long in the making and in the case of Melbourne, there was quite a long period there where we were seeing quite a lot of new supply.
“So what that's meant is that, we know in the markets that have the worst under supply relative to population growth, they typically see the most rapid growth but for Melbourne for a long time, housing supply had been keeping up.”
Jellis Craig Inner North partner and auctioneer Nigel Harry says that in recent years, particularly during the pandemic, many landlords had no choice but to sell their sub-million dollar apartments and townhouses.
“The 13 rate hikes we had, land tax and those that we're initially holding on to them after they traded up to their bigger family home, with the best of intentions, have had to exit the market,” he says.
What lies ahead for Melbourne investors?
Melbourne is very likely at a turning point in its cycle, Ms Flaherty says.
“We have seen home prices start to increase again in 2025 and I think in addition to the population growth, we're seeing the fact that interest rates are now coming down is giving people more confidence, particularly a lot of people like first home buyers, who may have been nervous to enter the market,” she adds.
The Reserve Bank of Australia has made two cash rate cuts so far this year, bringing rates down to a two-year low of 3.85%.
Mr Harry says further cash rate cuts would be the stimulus the Melbourne market needs.
“There is so much infrastructure going on around inner city, I think that people are seeing it as a pretty safe investment,” he adds.
Ms Flaherty says rental yields on a Melbourne unit were currently at 5.2%, which is above the capital city average.
“If you look at the yield on a house in greater Melbourne, it's sitting at 3.8%,” she says.
“That's a gross yield, and that's pretty on par with what we see in the other capitals, it's actually a little lower than what we see in a lot of the other capitals.”
Looking to invest in Melbourne?
Below are some investment-friendly houses and apartments currently for sale in Australia's third-cheapest capital.
Southbank boutique apartment
Advertised with an approximate potential rental income of $750 per week, this Southbank two bedroom apartment is part of the circa 1888 Bond store building.
36/1 Riverside Quay, Southbank. Picture: realestate.com.au
It is walking distance to Southbank Promenade’s restaurants, Crown, Federation Square and Flinders Street Station.
Highlights of the apartment include 89sqm of living space, which includes an open plan living and dining area, bedrooms with built-in robes and a renovated bathroom.
36/1 Riverside Quay, Southbank has an asking price of $750,000 to $825,000.
Prime city fringe location
Described in its listing as offering “timeless elegance with exceptional inner-city convenience,” this two bedroom, one bathroom home is located in the heart of West Melbourne.
634 Spencer Street, West Melbourne. Picture: realestate.com.au
The solid brick Victorian terrace at 634 Spencer Street, West Melbourne includes a separate lounge and kitchen, a bathroom with a separate shower and a private, paved rear courtyard.
It is conveniently located near cafes, the CBD, Marvel Stadium, and the Docklands.
It is on the market for $820,000 to $900,000.
St Kilda stunner
Investors looking for a home blending timeless elegance in a prime St Kilda location, should look no further than this four bedroom, one bathroom home.
11 Spenser Street, St Kilda. Picture: realestate.com.au
It has been used as a popular Airbnb residence, but is also suited as a tenanted investment.
Highlights of the home include soaring ceilings, a flexible floorplan offering the potential to convert the fourth bedroom into a master suite, an open plan kitchen, and manicured gardens.
11 Spenser Street, St Kilda is on the market for $1.9 million.
Prime location
This “investment gem” in the heart of the Melbourne CBD has an 11.16% rental return
1410/181 A'Beckett Street, Melbourne. Picture: realestate.com.au
Available with vacant possession, the 14th floor studio apartment includes an open-plan living space with a built-in study nook and a private balcony with city views.
1410/181 A'Beckett Street, Melbourne is priced at $215,000 to $235,000.
City fringe apartment
Situated on the ground floor, this one bedroom apartment at 6/209 Dandenong Road, Windsor is described as having a rental yield opportunity of 8% to 9%.
6/209 Dandenong Road, Windsor. Picture: realestate.com.au
The apartment has been freshly updated, with new carpet to the bedroom and includes a reserved parking spot and is conveniently located to public transport.
It is priced at $355,000 to $385,000.
